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Protect Your Organization in the Event of a Data Breach

One of the fastest growing areas of class actions in North America involves data breaches. Lost or stolen data from organizations is now, unfortunately, a regular occurrence. Most businesses and other organizations now have vast amounts of stored electronic data, and typically, that data will include confidential or private information about individuals. Accordingly, the consequences of a data breach can be very serious.

When such a breach occurs it will frequently lead (often within a very short period of time) to the commencement of a class action against the organization which was charged with maintaining the data. Even absent proof of harm being suffered by any of the individuals whose data was released, the sheer size of the group of individuals can, if the matter is certified as a class proceeding, result in enormous potential liability.

The appropriate technical responses to a data breach are obviously of critical importance, and it is for the organization’s IT professionals to prepare those responses. However, the organizations’ lawyers should be ready to provide the necessary legal responses to the class action that will almost inevitably follow a data breach. If appropriate and timely, such responses can preempt, perhaps defeat, and certainly mitigate the organization’s exposure.

Although each case must be considered individually, certain prudent steps are generally recommended. These typically include:

Providing immediate notice to the Office of the Information and Privacy Commissioner of Alberta (or the equivalent privacy commissioner of the relevant jurisdiction).

Issuing a press release and/or publishing notices alerting the potentially affected group of individuals in all relevant jurisdictions, providing details of the scope of potentially affected information, and providing a point of contact for further information (which will generally be or include the organization’s website).

If possible, directly contacting potentially affected individuals, for example, by email. Such e-mail should provide applicable details as to what information was at risk and the timeframe in which affected information was breached. In addition, details as to the steps that have been taken or are being taken to remedy the breach and prevent further occurrences, and any offers to assist from the organization, should be outlined.

Providing updates, and posting all updates to the website, as further information emerges and as greater detail or specificity becomes available.

Offering services such as credit monitoring or identity theft insurance at the organization’s cost (although the nature of the information released, the volume of potentially affected customers, and the risks which they face must be considered in each instance).

If the above steps are implemented in a timely fashion, then the organization is well-positioned to respond to any class action because:

The organization may argue that the process which it has already set up to address complaints is preferable to the civil litigation procedures of a class action. One of the prerequisites to certification of a proposed class action (the process whereby a Court accepts that the lawsuit may be brought on behalf of an identifiable group of complainants, not just the named Plaintiff) is that a class action be the “preferable procedure” to resolve the dispute;

Negotiation of a resolution, potentially making use of the steps already taken by the organization, will likely be much easier;

Some wind has been taken out of the sails of the lawyers for the class, because the damages suffered by class members (if any) have been mitigated; and

Class counsel’s fees (a significant feature of many of these claims and their resolution) will likely be less.

A recent Ontario Superior Court of Justice decision, approving the substantive elements of a settlement in relation to Canadian customers of Home Depot affected by that organization’s 2014 data breach, is illustrative. In that case, Home Depot had reacted promptly and proactively to notify the relevant privacy commissioners of the breach, as well as publishing notices and issuing emails directly to Canadian customers. In its communications Home Depot apologized, explained that the source of the breach had been eliminated, and offered various assurances to affected customers including free credit monitoring and identity theft insurance. There was no evidence of any actual harm suffered by any class member.

When a class action was then commenced in relation to the breach, a negotiated settlement followed which required Home Depot to pay for further credit monitoring and identity theft insurance services, as well as notice and settlement administration costs, honouraria to the class representatives, and class counsel’s legal fees.

Settlements of class actions are approved by the Court. In the Home Depot case, the settlement was reviewed by Justice Perell. His comments suggest that he wondered whether, given Home Depot’s comprehensive response to the data breach, a class action was even required. Nonetheless, as the parties had settled, he was obliged to consider whether to approve the settlement. Justice Perell did so, but with a reduction in the fees payable to class counsel from the $406,000 sought to $105,000 and disallowing any honouraria to the class representatives. Given Justice Perell’s comments, Home Depot may have been successful in simply opposing the certification of the class action on the basis that the entire action was unnecessary. Home Depot had, it appears, responded appropriately to both the data breach, and any damages which may have been suffered by its customers (the members of the proposed class).

In conclusion, organizations which have a data breach occur should take immediate steps, in consultation with their legal counsel, to notify the appropriate authorities and any impacted individuals. Further, those organizations should also consider taking steps to mitigate their exposure to class proceedings.